Oral Answers to Questions

William Hague: We look forward to the action— [Interruption.]—instead of concern and talking, which is all we have had so far at today's Question Time. Small businesses and pensioners are two of the casualties of an economy built on debt, so what exactly do the Government mean when they say that they are insisting that institutions which are being bailed out will maintain borrowing at 2007 levels—the year at the height of the boom that has turned to bust? Is that not irresponsible? Why did Baroness Vadera of the other place say that there was
	"no requirement for banks to lend forcibly",
	while the Chancellor was saying that lending would be maintained "at 2007 levels"? Who is speaking for the Government and what are their policies on the lending of those banks?

Stephen Timms: The purpose of this motion is to provide repayment of recent advances from the Contingencies Fund, and resources for the recapitalisation programme announced in recent days. It introduces an out-of-turn supplementary estimate for Her Majesty's Treasury to allow the repayment of the £4.6 billion advanced from the contingencies fund on Monday 29 September relating to Bradford & Bingley, together with the £600 million advanced on Wednesday of last week relating to UK subsidiaries of Icelandic banks. It also provides for the £37 billion announced by my right hon. Friend the Chancellor on Monday of this week for bank recapitalisation.
	The House knows of the current situation in the financial markets, and it knows that we have acted quickly in recent weeks to support the depositors of Bradford & Bingley, and of the two Icelandic institutions, Kaupthing Singer & Friedlander and Heritable.

Peter Bone: My hon. Friend the Member for Gosport (Sir Peter Viggers) makes an extremely important point about treating the causes rather than the symptoms of the problem and removing the toxic liabilities from the banks, but nowhere is that addressed in the central Government supplementary estimate that we are considering.
	On the technical point that I raised with the Minister, I understand that the vast bulk of this is cash accounting, but if there is a resource accounting element that is not provided for, the whole thing might fall. I am sure that his officials have considered that, but I am surprised that only £1,000 was included, whereas perhaps it should have been, say, £10,000 to cover all eventualities.
	In the course of the next three hours, assuming that the debate runs its full course, we will write a blank cheque to the Government for £42.2 billion—an increase in the cash estimate for the year of nearly 10 per cent. That is an unprecedented increase in an out-of-turn supplementary estimate. During those three hours, we will have spent £234 million of taxpayers' money per minute, yet what we know of how that money is to be spent is sketchy at best. It equates to £1,361 for each and every taxpayer in the country. It is to be spent as the Government want without proper debate or consideration, and without full parliamentary scrutiny. It is like the Government taking £1,300 of our money along to the local casino and betting it on black, hoping that it will not turn out to be red. On the roulette wheel, at least one knows the odds, but in this situation we have no idea what the possible return, if any, will be for the taxpayer.
	This supplementary estimate is part of the Government's £500 billion bail-out of the banks. It is the biggest bail-out in the world so far, paid for by the biggest peacetime increase in debt. It will lead to the Government's debt rising to 50 per cent. of gross domestic product—in other words, £8,200 for every man, woman, child and baby in the country. It asks us to approve an enormous amount of borrowing to support and bail out irresponsible banks. Only now are members of the public beginning to realise just what the Government are about. I recently received an e-mail from a constituent, which I should like to read because it adds light to the situation:
	"My partner brought it to my attention about a small banking situation where she accidentally missed a credit card payment to a major bank, who is in line for government/tax payers backing. A letter was posted to her with an amended payment figure and date of 20th october, but last friday the bank was on the telephone to her, high pressure, demanding cards and payment, luckily, she is not easily scared and told them otherwise!
	My issue is, in the light of the current banking problems, and WE the public are footing the bill for the banks errors in judgment, should it be "assumed" by the banks that just because they are in dire straights, everyone else is. It is not as if my partner is an habitual late payer, it was a one off.
	I feel that these banks should be humbled to the public in some way and not come on heavy handed at the slightest opportunity. With government intervention should these issues be taken into consideration? How many other people are being submitted to this style of treatment?...Yours sincerely,
	Mark Grinter."
	We can all relate to that. Anyone who has ever run a small business will know how unsympathetic, ruthless and heavy-handed banks can be, literally putting companies into liquidation at the drop of a hat. Yet taxpayers are being asked to bail out the banks to the tune of £1,361 each.
	It strikes me that it is a duty of Parliament not to write a blank cheque, but to scrutinise the Government's proposals in much greater detail. This out-of-turn supplementary estimate is the first opportunity we have had to scrutinise the Government's banking recapitalisation plans. Indeed, it is the first time that many Back Benchers have even had the opportunity to discuss the issue. Yes, there have been a number of statements from the Chancellor, but on each and every occasion Back Benchers have been left standing. Many Members have not been able to put even one question to the Chancellor about the extraordinary amount of expenditure that we are considering in this Government supply estimate.
	Things are different in America. Full congressional scrutiny took place and the revised package was far better than the original one proposed by the Executive. But in this mother of Parliaments, no time has been allocated to debate a substantive motion on which the Government could be defeated. The Government are spending the most extraordinary amounts of our money in nationalising, or part-nationalising, certain banks. Today's three-hour debate will be the first time that many Back Benchers have had an opportunity to discuss the matter.
	I find it quite extraordinary that this week we have found it possible, on non-substantive motions, to discuss democracy and human rights, access to primary care trusts, local government and energy providers. We have had hours and hours of debate on what are no doubt important issues, but clearly they are not as important as the biggest financial crisis in 100 years, with the Government heading from boom to bust at breakneck speed.
	I might be the only Member of the House who thinks that the Government's proposals have significant flaws, and that there should have been a far more market-oriented solution, but there should have been proper thought and consultation, and detailed proposals should have been brought to this House. I am sure that if that debate had occurred, many Members would have made improvements to the package. If we pass the supplementary estimate today, the Government will be able to do what they want with £42.2 billion of our money.
	I turn to the proposed, out-of-turn supplementary estimate we are considering. As I have said, we know little detail of how the £42.2 billion will be spent. Some detail on the estimate is outlined in House of Commons document 1061, and some supplementary information was provided by the Chancellor, who placed in the Library a number of documents two days ago. It was rather difficult at the time to get hold of the documents, but they were eventually released. The documents were the preference share subscription agreements between the Commissioners of Her Majesty's Treasury and the Royal Bank of Scotland plc, the preference share subscription agreements between the Commissioners of Her Majesty's Treasury and HBOS plc, and the preference share subscription agreements between the Commissioners of Her Majesty's Treasury and Lloyds TSB Group plc. In addition, we were provided with the placing and open offer agreements between the Royal Bank of Scotland plc and UBS Ltd, and Merrill Lynch International and the Commissioners of Her Majesty's Treasury and the placing and open offer agreement between HBOS plc and Morgan Stanley & Co. plc, and Dresdner Kleinwort Ltd and the Commissioners of Her Majesty's Treasury. We were also provided with the placing and open offer agreement between Lloyds TSB and "blank", and "blank" and the Commissioners of Her Majesty's Treasury. We have not even been told which merchant banks will be involved with the Lloyds TSB agreement.
	We know in broad terms that the estimate deals with £42.2 billion, and it is broken down as follows. RfR 1 of the supplementary estimates is entitled:
	"Raising the rate of sustainable growth and achieving rising prosperity and better quality of life with economic and employment opportunities for all"—
	a rather strange way to raise the issue of the biggest banking collapse this country has ever seen. The section "Reason for change" refers to
	"Changes relating to movements in budgets"
	and
	"Changes in annual managed expenditure".
	The detail is as follows. First, the £4.6 billion for the transfer of the retail deposit book and the branch network of Bradford & Bingley plc to Abbey National plc following the Bradford & Bingley plc Transfer of Securities and Property etc. Order 2008 No. 2546—in other words, the cost of allowing Bradford & Bingley to collapse. Interestingly, that is a totally different approach from that taken to the nationalisation of Northern Rock or the part-nationalisation of the Royal Bank of Scotland, HBOS or Lloyds TSB. There is a significant lack of consistency on the part of the Government, which was raised by the hon. Member for Twickenham (Dr. Cable). That lack of consistency has been a trend throughout this ordeal.
	Secondly, we have the £0.6 billion to ING under the Transfer of Rights and Liabilities to ING Order 2008 No. 2666. In other words, money to protect depositors in Icelandic banks. Thirdly, and this is where we turn to the capitalisation of the banks that has been discussed in recent days, we have the purchase of shares in Royal Bank of Scotland—£20 billion broken down into £15 billion of ordinary shares and £5 billion of preference shares. Fourthly, we have the purchase of shares in HBOS at £11.5 billion, of which £8.5 billion is in ordinary shares and £3 billion is in preference shares. Fifthly, we have the purchase of shares in Lloyds TSB at £5.5 billion, of which £4.5 billion is ordinary shares, and £1 billion is preference shares. When one says that quite quickly, it does not seem to be very much, but when we think of the enormity of what we are discussing, we can see that it is quite staggering.
	I know that other Members intend to speak, so I will not comment on the £4.6 billion relating to the Bradford & Bingley or the £0.6 billion relating to the Icelandic banks. I want to talk about the huge investments of taxpayers' money into the three commercial banks, and the market capitalisation of the banks. First, I would like to discuss how the capitalisations relate to the money we are proposing to inject. On 14 October, according to the Library, the market capitalisation of RBS was £10.9 billion, but we are proposing to spend nearly double that amount in taxpayers' money—£20 billion. The HBOS market capitalisation was £4.9 billion, and the proposed capital injection is twice that amount at £11.5 billion. Finally, Lloyds TSB's market capitalisation was £9.7 billion and the proposed injection is £5 billion—just over half of the market capitalisation. Those are extraordinary injections of cash, which are significantly disproportionate to existing market capitalisation.
	It is not clear how we reached such low market capitalisation. The last reported profits for those banks were: RBS—£9.9 billion; HBOS—£5.5 billion, and Lloyds TSB—£4 billion. The auditors' reports on those banks included no qualification, and it appears that the auditors will have signed off the companies' assets at a much higher value than they are now worth.
	The role of rating agencies in the fiasco should also be considered, but such issues should have been properly debated before we arrived at the mega supplementary estimate that we are being asked to approve today. How can we approve a blank cheque for £42.2 billion when we do not know the true strength of the three banks to which the estimate refers? It is impossible that due diligence was exercised. The ideas seem to have been thought up on the back of an envelope during night-long meetings. The detail of the offer and subscription agreements shows the folly of that.
	Let us make a UK-America comparison. Later, I want to consider in detail the individual estimates that the various documents show, but the British Government's proposal clearly differs significantly from the American package that was announced last night. The latter is market oriented and designed to benefit the American taxpayer and the larger economy. The British Government's approach neither protects the taxpayer's interests nor allows the banks to recover—it is deeply flawed.
	There have been huge regulatory failures to control the banks over many years and a huge bubble of debt has ensued. It appears that the banks have been lending more and more debt between themselves, which has little or no value. The boom was built on debt and was therefore bound to crash. If a small prick is made in a big balloon, the whole thing will collapse. The housing market's collapse has pricked the balloon and all the financial air is rushing out. The out-of-turn supplementary estimate constitutes an attempt to put a patch over the escaping air, but it does nothing to tackle over-lending, which is the root of the problem. How could it be right to lend mortgages of 125 per cent. of the value of property? How could it be right to allow self-certified mortgages or lend five or six times a person's annual income?
	The position was made worse by the insistence that there would never be a return to boom and bust—that was the Prime Minister's mantra. That was clearly nonsense because it defied economics and trade cycles, but it encouraged ordinary people in this country to take on more and more debt because they believed that the value of their houses would always increase. The banks were happy to lend because they thought that the value of assets would always go up. The Prime Minister must accept a great deal of responsibility for that boom. The £42.2 billion in the supplementary estimate is the colossal price that we are paying for his incompetence.
	Many people will ask why we are protecting the banks and bank jobs at colossal risk when we allow other companies to go to the wall. The employees of XL travel or Travel City Direct and others in that group, who lost their jobs overnight, must wonder why they are being asked to bail out bankers. Today, it was announced that total unemployment had increased to 1,792,000—5.7 per cent. of all those economically active. Inflation is running at 5.2 per cent., which is more than twice the Government's required rate, and house prices are in a nose dive.
	All those factors form a significant background to the out-of-turn supplementary estimate. I believe that British taxpayers will be outraged if we approve the estimate today without proper and due consideration of the relevant issues. In my constituency, 1,721 people are on jobseeker's allowance—in 1997 the figure was 1,643. In Wellingborough, we have therefore already reverted to the position of 11 years ago. The unemployed in Wellingborough must be astounded at the amount of money they are effectively being asked to spend in the estimates.
	It is difficult for hon. Members and the public to accept the Government's consistently moving the goalposts. We are considering estimates, but proposals for spending the money change from day to day. I have no faith, given our limited knowledge today, that the money will spent in the way that we think—it could be spent totally differently.
	Let me illustrate the point with some of the Chancellor's statements. When he discussed the nationalisation of Northern Rock on 18 February, he said:
	"I want to set out the reasons for the decisions that I have made and to outline what the new legislation will do. Before that, let me remind the House that last September there was almost universal agreement that the Government were right to intervene to save this bank to stop its problems spreading to the wider banking system. There was also an agreement that, ultimately, the long-term future of the bank must lie in the private sector. Even those who advocated nationalisation in the autumn did so on the basis that this could be only a temporary step—a stepping stone—to return the bank to the private sector, when market conditions made that possible... The Bill potentially applies to a range of financial institutions, but I want to make it clear that the Government have no intention at present to use it to bring any institution other than Northern Rock into temporary public ownership."—[ Official Report, 18 February 2008; Vol. 472, c. 21-2.]
	Clearly, the Government's position then was that nationalisation was a one-off—an individual, specific situation—and that the bank should be returned quickly to the private sector. It was to be a temporary stepping stone, not long-term nationalisation; a one-off, not a problem with the whole banking system.
	However, on 6 October, the Chancellor made a statement to Parliament on the financial markets. He said:
	"We need, too, to work with other countries to tackle the causes of these problems, as well as dealing with their consequences. Let me briefly remind the House of what we have done to stabilise the banking system as a whole. Since April, the Bank of England, with support from the Government, has introduced the special liquidity scheme providing funding to the banks. The Government have made available in excess of £100 billion of long-term funding to be lent through the scheme, and the Bank of England has extended it until January. I am willing to make further resources available as necessary and the Governor has made it clear that
	'In these extraordinary market conditions, the Bank of England will take all actions necessary to ensure that the banking system has access to sufficient liquidity'".—[ Official Report, 6 October 2008; Vol. 480, c. 21-2.]
	The goalposts had been moved. The problem was no longer the temporary nationalisation of one bank but liquidity in the banking system.
	Two days later, on 8 October, the Chancellor made a statement entitled, "Financial Stability", and the goal posts were moved again. He said:
	"I also said that the Government were ready, with the resources and the commitment, to do whatever was necessary—in terms of liquidity and capital—to maintain stability in the banking system. That is why today I put forward measures designed to restore confidence in the banking system and to put banks on a stronger footing.
	There are three strands to what I have outlined today: first, to provide sufficient liquidity now; secondly, to make available new capital to UK banks and building societies to strengthen their resources and to restructure their finances, while maintaining their support for the real economy; and thirdly to ensure that the banking system has the funds necessary to maintain lending in the medium term."
	He continued:
	"The eight major UK banks have today announced that, in aggregate, they plan to increase their capital by £25 billion. Banks can raise that capital in the open market, in the usual way, or they can raise it through the newly created bank recapitalisation fund. Other eligible banks and building societies can also take part.
	Through the fund, the Government stand ready to buy preference shares in the participating banks. Preference shares rank above the stock of ordinary shareholders. The Government will receive a fixed regular payment for holding those shares and will get better protection against any future losses. In addition to that, the fund will be ready to provide at least another £25 billion of capital to strengthen the balance sheets of any interested bank. The taxpayer, therefore, will be fully rewarded for that investment."—[ Official Report, 8 October 2008; Vol. 480, c. 277-278.]
	The goalposts were therefore moved, to £25 billion of preference shares with regular dividend payments—not a direct investment in common stock, but an investment in preference stock. I could understand that logic, but the position has changed significantly in the current estimates, which are not the same as the position set out in that statement.
	The Chancellor came to the House with another statement on 13 October—his most recent statement to the House. If I read a few lines from that statement, hon. Members will see that the goalposts have moved yet again. The statement was entitled "Financial Markets".

Peter Bone: Thank you, Madam Deputy Speaker. I do apologise, but I wanted to get on record the fact that I was not misrepresenting in any way what the Chancellor had said. Basically, we had moved from the idea of preference shares to massive investments in common stock. Only in today's estimates are we being asked to provide £9 billion of preference shares, when a few days ago we thought that we were going to be providing £25 billion of preference share stock. Instead, my calculation is that we have £28 billion of ordinary shares to buy, which came out of the blue. That is an extraordinary departure. The goalposts have moved so quickly and with so little scrutiny that I do not see how the House can approve today's out-of-turn supplementary estimates.
	Let me say something about the political impact of the statements and how the Government and the Opposition have worked. I would like to praise the Leader of the Opposition and the shadow Chancellor for what they have done in the past few weeks, which has not been easy for them. It would have been easy for them to attempt to make political gain, but instead they have acted in the best interests of the country. In this sobering time of financial crisis, they have put aside their differences and worked with the Government.
	The Leader of the Opposition and the shadow Chancellor deserve great credit for that. I fully respect their actions in putting the good of the country first. They have suggested amendments to Government actions and, at a time of extraordinary crisis for the country, have supported the Government to ensure that there is no panic in the system. The manner in which my right hon. Friends have conducted themselves has been admirable. They have done extraordinarily well. Indeed, today we have yet again heard a helpful and constructive statement from the Opposition Front Bench, from my hon. Friend the Member for South-West Hertfordshire (Mr. Gauke), who posed a number of questions that are of great importance to the country.
	However, that does not abrogate the need for a proper parliamentary discussion about today's estimates and the Government's decisions behind them. Having the issue debated in Parliament is the tried-and-tested way of ensuring that matters of such high national and international importance are comprehensively and successfully concluded.
	Let me turn briefly to something that appears to be missing from today's supplementary estimates, which is the situation of Equitable Life. I cannot understand why there is no provision in the estimate for the money that the Government will have to pay in relation to Equitable Life. By not bringing that forward today, they will have to return to the House and take up more parliamentary time introducing a provision to cover the cost of compensating Equitable Life pensioners.
	There is no question but that the Government will have to do that, because the ombudsman has ruled against them. Unless they totally ignore what the ombudsman has said, why on earth was a small additional provision not included in today's estimate to cover the potential cost of compensating Equitable Life pensioners? If I were an Equitable Life policyholder, which I am not, I would be outraged that the Government are providing £42.2 billion of taxpayers' money to prop up the banking system while dragging their feet in supporting pensioners whom the ombudsman has already ruled should be compensated. I would be grateful if the Government could explain that omission.
	Let me turn to the detail of what we are considering, which is the central Government supply estimate and the documentation relating to it. This large document—the placing and open offer agreement—is what the Government have supplied as background reading, and it was great fun to spend many hours reading through it. It is about spending £37 billion of our money. I have looked at many share subscription agreements in the past, but the ones in this document seem to have so many holes in them that we could spend the rest of day going through each one. I am not going to do that, but I want to address the main points that we are considering today.
	I should point out that we are talking about only three banks, not the whole banking system. In fact, in his statement on 13 October, the Chancellor confirmed that Santander, Barclays, HSBC, Standard Chartered and Nationwide had all increased or were in the process of increasing their capital base without having to turn to the Government for funds. I therefore want to discuss what in the out-of-turn supplementary estimate relates only to HBOS, Lloyds TSB and RBS. There is a broad breakdown of the estimate in House of Commons document HC 1061. The details of the estimate are broken down in six separate documents, but they are far from complete and in some respects contradict each other.
	It is extraordinary that the preference share subscription agreements could be so different and written in such a different style. I note that the US Government's proposals, issued over night, are common for all banks, and I am amazed that the same is not true for the three banks that we are talking about. I am not talking about just the details of the dividend rates; I am talking about the style and manner in which the agreements are written. One document refers to a floating dividend rate plus LIBOR, another to a floating dividend rate of LIBOR plus 7 per cent. They may refer to the same thing, but they are written totally differently.
	I have personal experience of dealing with a Government preference share issue. It was many years ago, when I was running a small, expanding manufacturing company, but the principle is the same. In my case, we were helping to expand a new manufacturing company, but the issue could equally have been to support the working capital of an existing company. And we are seeing exactly the same principle today. My case involved £100,000—if we add a few noughts, we can compare it with what we are dealing with today—and it involved non-voting, fixed-rate, cumulative, redeemable preference shares. Preference shares are ranked more highly than ordinary shares, so if there is a liquidation, the holders of those shares get their money back before the ordinary shareholders. However, the holders of preference shares rank lower than creditors, so they in fact become the capital of the company.
	In the supplementary estimate that we are considering today, we are told very little about the terms involved. We have to look behind it to the supporting documents, which are not entirely clear. If I make errors when I talk about what I think the Government are proposing, it is because we have not had a clear, proper explanation of exactly what they are doing.
	In the case of a cumulative preference dividend, if a company cannot pay a dividend, it does not have to do so. However, when its trading recovers, the dividend is collected in subsequent years. For example, a return of 5 per cent. might not be paid in year one or year two, but a return of 15 per cent. would be paid in year three. That dividend would be paid before anything was paid to the common shareholders. Why have the Government not made the preference share agreements cumulative? According to the documents, they are non-cumulative. There is therefore a possibility of there being no return at all for the taxpayer from the preference shares.
	In my case, the preference share dividend was paid, the shares were redeemed and the company flourished. I would hope that that is the outcome that we want from the banks. However, the Government have done some extraordinary things. First, there is the non-cumulative aspect of the preference dividend. Secondly, the notional preference dividend is an extraordinary 12 per cent., at least until 2013. After that date, it splits, and Lloyds TSB will pay 7 per cent. on the preference dividend, while HBOS and RBS will pay that amount plus LIBOR. I do not understand how that will work if the Government are planning to put Lloyds TSB and HBOS together as one company. That is not explained in any of the documents or in the supplementary estimate. The rate of inflation is 5.2 per cent. at the moment. I could understand the Government setting the notional preference dividend at 12 per cent. if they thought that there was going to be an explosion in inflation. At this stage, however, it appears punitive, and it will prevent the company from making any preference share dividends. In the United States, the Government have come up with a 5 per cent. preference dividend.
	Another issue that concerns me greatly is the restriction on when the preference shares can be redeemed. They cannot be redeemed before 2013, plus five years from the date of issue plus one day. That makes them a medium-term investment. The decision whether to pay a return on them is entirely a matter of discretion for the board of directors. That is made clear in the documents. If I were one of the directors, I would not declare any dividend before 2013, given that the directors would not be allowed to pay an ordinary dividend until all the preference shares had been redeemed, and that they could not redeem the preference shares until at least that date. If they repaid the preference shares at that point, there would be only one dividend payment. If that were divided by the minimum number of years that the preference shares had been held, the rate of return for the taxpayer on the billions of pounds invested in those preference shares would be 1.4 per cent.
	We have already seen outrage in the financial press at the idea of preventing the banks from paying ordinary dividends until the preference shares have been redeemed. I cannot imagine why people would want to invest in banks that they know cannot pay a dividend until at least 2013, and possibly much later, when there are at least five other banks in which they could invest. That is a huge error on the part of the Government. They do not seem to have thought this through, and it is their rush to take action that concerns me most. I would have liked them to say that they would look at the provisions for preference shares, think the matter over in more detail and come back to us early next week with a properly thought-out motion that we could discuss before debating the supplementary out-of-turn estimate. The problem with agreeing to the estimate today is that a Bill was automatically generated under the motion passed last night on which we are allowed no debate whatever. We will be allowed only to vote on it.
	My suggestion to the Government is that they follow the American example of having a much lower preference dividend rate, and that they allow dividends on the ordinary shares. Let us face it, we are going to be huge holders of the ordinary shares, and such a provision would get a return for the taxpayer right away.
	I want to make a couple of points relating to the massive common share issue, which is totally new and has had no parliamentary scrutiny. Originally, we were told that Lloyds TSB, a strong bank, was to take over HBOS, so that there could be a market solution to HBOS's problem. We were told that we were going to throw away the competition laws to allow that to take place. I am not sure that that was the right thing to do at the time, but the principle was that the two banks were being put together to provide a market solution. I really want the Government to explain why Lloyds TSB is not being allowed to go its own way, like Barclays and the others, now that we have nationalisation—or part-nationalisation—on a massive scale. It is a much stronger bank. We would then have only two banks in part-nationalisation. I have seen no ministerial statement, either in the House or in public, on that issue.
	Finally, I turn to the supplementary estimate that we are being asked to consider today. There has been an enormous amount of talk across the Dispatch Box about the terms and conditions that would be put on these companies. I have hunted high and low through the documents to find out what kind of controls are to be placed on the directors. When I was in business and a mere £100,000 was being invested, we had a thick booklet to tell us what we could and could not do. Our emoluments were controlled. Only two pages among the several hundred pages of documents before us deal with this issue. They state that the directors cannot have a cash bonus this year, but they can have a bonus in stock. Most bonuses are in stock anyway, so no control is being placed on these greedy bankers about whom there has been so much fuss. The Government might be trying to hide the fact away, but there is nothing in the documents that will control those emoluments. That is an extraordinary omission.
	At the same time, however, the documents set out a wholly unacceptable condition—my hon. Friend the Member for South-West Hertfordshire was right to correct me on this earlier. They state that, for three years, the level of lending must be at the 2007 level—the very time when too much lending was going on. The Government are imposing only very limited conditions on the directors, yet they are imposing a condition on the banks that is completely wrong for them and for the country. There are no time scales on these investments. The documents just have blank spaces where the time scales are supposed to be. They say 20—something. This week, we have been debating important issues, but not ones of fundamental significance, yet we are being asked today in a three-hour debate to approve a blank cheque for £42.2 billion. That is just plain wrong.

David Heath: The hon. Gentleman tempts me into a debate that is for another day, but I hope I have made my views clear.
	I welcome the comments of the hon. Member for Wellingborough (Mr. Bone). I do not agree with everything he said, and he would not expect me to, but his most important point was that this is the first opportunity that Back Benchers such as myself have had to say anything about the biggest international and national crisis that the House has had to cope with for many a long year, and that a debate such as this is an inadequate vehicle for that purpose.
	I would go further: I have said more than once how badly the House deals with matters of supply, which some would say is our prime purpose. It is why we are sent to this House, yet we are unable properly to scrutinise Government expenditure. I suppose that we do a reasonable job of scrutinising the raising of revenue, but expenditure is largely a matter of the House rubber-stamping estimates during wholly inadequately estimates day debates. If the House is serious about holding the Government to account for the vast amount of taxpayers' money that they spend, it needs to consider major reform of that procedure.
	As the hon. Member for Broxbourne said, it is extraordinary that so few right hon. and hon. Members have felt it appropriate to come to debate the spending of £42 billion. They will come and debate other things, but £42 billion? "Oh, well, that's nothing important, is it? That's not why we're sent to Parliament. We've got far more important things to do." Well, I disagree; I think it is exactly why we are here.
	Various hon. Members have mentioned the difference between how we debate these matters and the American system. There is much to criticise about American governmental and administrative structures, but it is entirely misplaced to argue, as some have, that it was wrong for the House of Representatives to debate at length and in detail the package that was put to it a week or two ago. Whether or not we agree with the views expressed, it gave those representatives the opportunity to express the views of their constituents, which are easy to forget in the desire to establish consensus. That is not an unreasonable or incorrect impulse, but there seems to be a desire to demonstrate how clever we all are about matters economic and financial. I am certainly not clever about them. My hon. Friend the Member for Twickenham (Dr. Cable) is, which is why I trust implicitly the views he has expressed in recent weeks. I claim no expertise, but I do claim a right to speak up for my constituents and discuss the concerns that they have expressed to me. I shall therefore talk about those concerns.
	I am not against the step that we have reluctantly taken to recapitalise the banks through the mechanism that has been set up. It raises enormous questions, of course, and at one stage I was worried that there would be an almost free injection of cash into the banking sector. I could not have countenanced that without at least some return for the taxpayer. I am satisfied that that is at least partly covered in the Government's proposals, but the people in our communities who examine what the House and the Government are doing have real concerns that have perhaps not yet been satisfactorily met.
	Our constituents have suspended disbelief at the moment. They accept that there is an enormous crisis. It was often referred to last week as "staring into the abyss", but a more apt metaphor would be the mediaeval maps of the world on which there would be a vague bit around the edge, where would be written "Here be dragons". Nobody knew quite what would happen if they sailed off the known world into the areas where the dragons were assumed to lie in wait. We do not even know the nature of the dragons, but it was an extremely scary place to be.
	I hope that what has happened in the past week or so, in this country and internationally, will have allayed some fears and staved off some of the dangers, but there is still genuine concern. I think that people are beginning to realise just how important the whole process has become to their real lives and the real economy. The interconnection was not immediately apparent. People in Somerset do not lie awake worrying about merchant bankers. If the merchant banking system were to crash suddenly, it would not cause many tears among my constituents until they realised the consequences for real jobs and businesses and real people's private finances.
	I received a tragic letter from a constituent about events a long way away, in the United States. Sometimes we wonder whether we worry unduly about events in the economy and politics of the US, but the letter was from a 94-year-old lady in a nursing home, all of whose savings had been invested without her positive agreement—it was done by one of those advisers who manage such things—in Lehman Brothers. When she wrote to me, she had no idea whether she had anything at all left to ensure that she would be looked after in her old age. That shows the real interconnection between events that may seem distant but actually have direct consequences in our communities.
	The big question that my constituents and, I am sure, those of other hon. Members are asking is where the conditionality is. They say, "We are putting into play vast amounts of our money, so what do we get out of it, other than stability?" Stability is a perfectly good end in itself, but what else do they get? One issue that has been raised with me many times is the culpability of those who took risks and played fast and loose, and whether there will be a degree of retribution. Will those people get their come-uppance?
	It is unfortunate to use another north American example, but when the chief executive officer of Lehman Brothers was before a congressional committee, he was taxed on why he was walking away from the crash with—what was it?—$500 million. People do not understand why somebody who appears to have been criminally irresponsible with their money gets to keep $500 million. That sticks in the craw of many people in this country; they do not like the idea of a one-way bet. They do not like the idea that someone can win only if they have the money to pay the entrance fee to these casinos that we call the City, because if they find themselves losing, somebody else pays the bill. The view that this is a one-way bet whereby people can only win and cannot lose offends not only the Chapel sensitivities of people in Somerset but ordinary British people, and we must be careful not to create that impression.
	People are worried about the vulnerability of the money that is being invested by the Government. They want to know that it is not simply being poured down the drain and that there will be a return on the investment. I look at what is proposed, but I am not sufficiently expert to be convinced that there is a lock on those investments that will ensure a return for the taxpayer—I hope that there is. Most people have to accept at face value the assurances that they are given, but, not too far away, there will be a reckoning when we will see whether there is such a return.
	People want to see equity between different interests and between different sectors, because it cannot be right that the Government are interested, for strategic reasons, in propping up only one industry and will allow others to fall. That takes us into tremendous conundrums of national policy: are we then to intervene in every failing company in every failing sector, or are some sectors considered more equal than others? I do not know the answer to that, but I know that the question will be asked. There have been recent company failures in my constituency. Usually the companies involved are not household names. They are not big companies that attract the headlines, but for the people who find themselves redundant as a result of such failures, it is every bit as important as the collapse of some big name in the City.
	That brings me to my next concern. Unemployment is rising, and we have explored that over the past couple of days. I remember when I was first elected, the town of Frome, which I have represented for nearly 25 years in one capacity or another, had a 17 per cent. unemployment rate—it was crippling. The town was in deep and long-term recession. Over recent years, the town has been blessed with almost zero unemployment—almost full employment. It has been very good for the town. There have been hiccups along the way: companies such as Cuprinol and Coloroll, the carpet company, both of which people will have heard of, lost their way, but we recovered from that because the underlying local economy has been strong. Now, unemployment is creeping up again. Although the increase is not huge in empirical terms, in proportional terms we are talking about quite a high percentage. What worries people in rural areas—areas off the main communications system—is how we win those jobs back in a competitive environment if there is a national recession.
	I am not satisfied that we have right even the basics for dealing with failing companies. Only this Saturday, a gentleman who had just been made unemployed—along with a number of his colleagues—came to my constituency surgery. He had not been paid his last month's wages, but the company was carrying on trading. It was doing so despite failing to pay these employees for their last month—they were owed that money. That is not a unique experience, but it is wrong; it is robbery and theft from the people who can least afford it, and I object to it.
	We talk a lot about the need to refloat the business economy, particularly small and medium-sized businesses, which are so dependent on bank loans in order to maintain their business. I have yet to see clearly that the steps that have been taken have had the desired effect, although I have faith that they will do so. A big risk is involved over the next few months. I supported the Bank rate reduction, and my hon. Friend the Member for Twickenham had called for it, although he would perhaps have preferred a slightly more aggressive reduction. However, if it is not even passed on to those who have loans with a bank in Government ownership, why should we trust that other banks will pass it on? What mechanism is in place to ensure that banks make business loans both available and affordable, rather than merely to exhort them to do so?
	Housing and household repossessions also need to be addressed. The biggest growth industry in Somerset is in the courts dealing with repossession orders: there are not enough people to hear the repossession cases in order to clear the backlog, and the position is worrying. I have been warning for many years about the situation in my constituency, which has one of the country's highest ratios between average house price and average earnings. The fact that people are paying such large multiples of their average wage to keep a roof over their head is unsustainable—indeed, many people cannot have a roof over their head, at least not in the village or small town in which they were brought up.
	Foreclosures are now occurring, and it is not clear to me that what the Government are proposing and what we are being asked to support will reduce them. Measures could be taken to do so: we could offer to take equity in houses in order to keep people in possession of their own homes. There are ways that the banks, building societies and others could make a real difference, but it is not clear that such measures are included in the proposals before us.
	Mention has been made of local government and the difficult position that so many councils face in respect of their investments in Iceland. I looked at the list of such councils, and I could see no discernible political difference between the councils that had invested in Icelandic banks and those that had not done so. Many of the local authorities involved are considered to be the most astute in the country at financial management, so something has gone wrong with the advice they were given. I find it difficult to blame councillors of any political persuasion on this matter, unless I have evidence that they acted rashly. I suspect that most councillors will have had no part in the decision-making process. When I led a council, we were given regular reports on the investments of our pension fund, but they were in generic terms; such reports dealt with the sectors rather than the day-to-day management of investments. I would be worried if elected members had direct control of the route by which investments were made. Although I do not attach blame directly to councillors—or even to councils, provided that they were shown to have taken proper precautions—we must do something to get the assets back.
	It is very important to get those assets back, despite the fact that, compared with the turnover of the councils, the investments are relatively small. The figures sound huge when they are quoted down the pub, but they are only a small part of the annual spend of large county authorities. However, the sums are significant and need to be returned. The Government and the Local Government Association—and anybody else who can help—need to be fully engaged in ensuring the return of those assets, because if they are not returned, the money cannot be used for investment in the local community, be that in the direct provision of services or in long-term capital investment and so on. Thus, the return of those assets is an imperative.

Graham Stuart: I agree with my hon. Friend, and in some ways I am even gloomier than he is. I feel that the costs are being masked. Ministers are suggesting that we will get all our money back. They have almost suggested that there will be a profit to the taxpayer as a result of the Government's intervention in the markets. I fear that there will be heavy costs for the taxpayer, and that the dark clouds will visit places such as Thorngumbald in my constituency.
	The earlier Labour Government that my hon. Friend mentioned were, of course, in exactly the position that he described. We had to be bailed out like a third-world country, and there were swingeing cuts to public services. We all remember the unburied bodies, and the rubbish cluttering our streets, yet here we are again. It is the 12th year of a Labour Government, and the Bank of England is again running out of money, with the only option being to print more of it.
	A Labour Government are impoverishing this country. Fortunately, a Conservative Government will come to power, but, unfortunately, they will yet again inherit an economic mess left behind by Labour utopian politicians. However, those politicians fail to deliver that utopia and, most importantly, spend the hard-working taxpayer's money. They always visit misery on those with the least.  [Interruption.] Labour Members do not like to hear that. At the end of that 12-year period, the gap between rich and poor has actually widened. The gap between the educational outcomes of the poorest in our society and those of people at the top have widened under a Labour Government. Health inequalities have widened under this Government. The hon. Member for Glasgow, North-West (John Robertson) may want to laugh because of his arrogant assumed moral superiority to those of us on the Conservative Benches, but I am proud of the fact that health, education and wealth gaps were narrower when we left power than they are today. That is before the cost of the Prime Minister's spending spree and irresponsibility is taken into account. However, it will come home to roost, and will have to be paid for by the British taxpayer.
	I would like the Minister to comment on the issue of transparency, and on the need to declare, on the Government books, the liabilities that the Government are taking on. In a similar vein, it is absolutely essential that we have some idea of the risks that are being taken. What is the extent of the liabilities? I know that the Chancellor was asked whether any limit would be put on liabilities. The Economic Secretary to the Treasury, when winding up yesterday's debate, said in response to that question that the Government would "do whatever it takes", repeating the mantra of the Prime Minister and the Chancellor. Is there to be no limit to the liabilities to which the Government are prepared to sign up, and no limit to the number of future generations who will pay additional taxes because of the bail-out, which resulted from the Government's failure of regulation? I hope that the Financial Secretary to the Treasury can reassure us on that point, because the issue should not, and cannot, be avoided. The House needs to hold the Executive to account, and if it cannot do so on the issue of vast liabilities, it really serves no purpose at all. The various hon. Members who commented on that point this afternoon were right to do so.
	I hope that the Minister will answer the question on Lloyds TSB and HBOS. The issue has been mentioned by others, so I mention it only in passing, but to repeat the argument briefly, the whole reason for bringing the two banks together, and for ignoring competition regulations, was to stop HBOS from failing, and to prevent a domino effect in the wider financial community. Now that the Government have intervened, that rationale is no longer there, and there will be loss of competition on the high street. If the Minister cannot give an answer today, please will he work with his colleagues on the matter and bring some common sense to the issue? It cannot be right for the consumer to have less choice on the high street while the state is intervening in our banks.
	I hope that the Minister will allow me to ask him this once again: what advice was given to local authorities? Why did so many of them leave their money in the Icelandic banks? The hon. Member for Somerton and Frome said that none of them could be blamed for doing so, and he may well be right, but when I telephoned my mother a few days ago, she said that she had considered the Icelandic banks. She had looked at their interest rates, which were very attractive, but thought that they looked a bit too good to be true, so she stuck with the Royal Bank of Scotland, with whom she has shares. Admittedly, she said that she was equally disappointed with it. She accepted a lower rate of interest because she reckoned that if an offer seems too good to be true, it normally is, and that if one has savings that one cannot afford to lose, one should put them somewhere sensible and safe. She thought that the Royal Bank of Scotland was sensible and safe, and I hope that it will be in future. I would be interested to hear from the Minister on that point, and on why so much public money was invested with those Icelandic banks.
	I know that the Minister is aware that local authorities face a real crisis in social care provision. Already, people with moderate needs have lost their right to social care in the home. I have disabled constituents who can no longer get any support from the local authority because their needs are not severe enough; only those with critical or severe needs are getting that care. The loss of local authorities' money might lead to the withdrawal of even more of that social care. I know that Members on both sides of the House will spend time each week working constructively with their local council to try to ensure that vulnerable people get the support that councils struggle to provide from their budgets. I hope that we can count on that.
	I should declare an interest, as I am still an owner and director of a small business. I remember talking to others who ran businesses, whether in the pub or elsewhere, about the rapacious, greedy, fat, selfish, lazy banks and how they dealt with most small businesses. I always used to say, "There's only one thing worse than lazy, fat, rapacious, greedy banks, and that is bust ones." Banks may behave in the way that I describe, and they may, as the old saying goes, offer you an umbrella only when the sun is shining, but at least when they are in business they can lend money. In answer to the question asked by the hon. Member for Somerton and Frome, to whom I seem to be referring constantly, banks are in a different category. Without them, British business does not survive and prosper. The main banks therefore cannot be allowed to fail. That has been shown in the past weeks by the Government's action. The question is how the Government will ensure quid pro quo. How will they ensure that the banks are regulated and carry out their business prudentially? How will they ensure that there is no loss of creativity or innovation? We would not want that. So I welcome the fact that the banks are being saved, because they are absolutely necessary.
	I forgot to mention Equitable Life, and many of my constituents have written to me on that topic. Within the billions of pounds that are being spent to sort out the financial system, surely it would be right to rectify the injustice that has been visited on so many people who tried to be prudent. They saw Equitable Life as a safe place for their money. They had researched the matter, and they were not being greedy and wanting the highest possible returns. They had looked to place their money somewhere sound and safe, and they felt that they had had promises from Governments, Conservative and Labour, that regulation would protect them. As the Financial Secretary well knows, they have not been protected. The ombudsman found against the Government and those people cannot believe that this Labour Government, who claim to deliver justice for people, can continue to ignore their righteous pleas for fairness.
	The other comment that I remember from the streets of Thorngumbald on Saturday was from someone who said, "Surely your priority"—they see me as part of this place and of government in all its forms—"should be to protect those who are trying to pay their mortgages?" I agreed, and he asked, "Why then are you spending hundreds of thousands of pounds of taxpayers' money through the EU on a pay-off for the new Trade Secretary who has voluntarily moved to a new job?" How can that be right, especially for the Labour party, which claims to be on the side of ordinary people like my constituent, who is struggling to pay his bills and his mortgage?

Stephen Timms: The hon. Gentleman knows that I returned to the Treasury only 10 days ago. [Hon. Members: "Hear, hear"] I am grateful to my hon. Friends and others for their support—one or two Opposition Members have made some kind remarks, for which I am grateful. I did not see anything before I returned to the Treasury. Indeed, I did not see the hon. Gentleman's article, so it was interesting to hear his comments. One can only wish that he had a greater degree of influence over Conservative Front Benchers when they reflect on these matters.
	We thought it important to safeguard the interests of taxpayers. The directors, who will appointed by the Government, will be qualified and independent, and they will not be civil servants. I see no reason why, for example, they should not sit on remuneration committees, which picks up a specific point raised in the debate. There will be no cash bonuses for directors this year, which is right.
	There has been a little bit of misunderstanding around the point that we do not want to return to the 2007 volume of lending. Lending has completely stopped to important parts of the economy, and we want it to resume. We want it to be available as it was in 2007, and we want to see marketing and competitively priced products.

Michael Penning: The Minister is generous. Does he realise that another matter is causing concern? Bus companies are encouraging my constituents to take out the free concessionary pass, regardless of whether they will use it, and charging the local authority £30 to do that. There is no point in issuing the pass to those who will not use it. If they intend to use it, it is wonderful, but, if not, the bus companies get free money, which costs my constituents and the Treasury.

John Healey: I have seen some of the estimates of projected cost from local authorities, which understandably want to make the case for their area. Of course Ministers are watching and want to receive reports on how patterns of travel appear to have been affected by the new right. We want as many people as possible to take up the new right, so we will do what the hon. Gentleman encourages us to do. However, I do not want to raise any expectations among local authorities, not least on the Isle of Wight, that when the picture is clearer as a result of that work they may be in line for extra money. A significant amount is going in this year, next year and in the third year of the current spending review, precisely to cover the cost of the new entitlement.
	Let me return to a point that was raised earlier. Local government is not immune to the credit crunch. Like families, firms and central Government, councils too must tighten their belts. Local government faces direct pressures as a result of the credit crunch, as well as the rising cost of fuel and other goods. It is more expensive to borrow, which has implications for local authorities, as it does for everyone else. Some councils report losing revenue from planning fees, for instance, as fewer applications are made for building projects. Finally, some councils also report increased demand for local government services and support. All that is happening within a tight financial climate.
	Let me turn to the consequences of the collapsed Icelandic banks. The Government have had two priorities. Our first is to do everything that we can to help councils, alongside other creditors, to get back the money that they had in the Icelandic banks. Our second priority is to work with the Local Government Association to assess the position, council by council, and agree action that we will take together where some are struggling. Indeed, along with the Economic Secretary to the Treasury I met local government leaders earlier this afternoon.
	As things stand, the LGA reports 116 local authorities with £858 million in deposits in the four collapsed Icelandic banks. The LGA also tells us that 13 local authorities have reported that they might face short-term difficulties, but that they have no reason to think that wages will not be paid or that services will be put at risk.
	However, we want to be clearer and more confident about the position of these councils, and we want the message to go out that councils that could have severe short-term problems will not be on their own. I can therefore report to the House that financial experts are going into three authorities today, and that the LGA and I expect initial reports by the end of the day. Experts will continue to work with those councils after that. Specialists are also contacting the other 10 authorities today, and offering to help them to assess their position and their options. The Government and the LGA will provide further expertise to those councils if necessary.

John Healey: In 2004, fresh guidance was put in place for local councils considering their investments. Those authorities were not under pressure to maximise their investments, as the hon. Gentleman puts it. They were required to make investments prudently, and to give the highest priority to the security and liquidity of the investments that they made, and only then to consider yield in that context, and only to the extent that it was consistent with security and liquidity. I hope that that addresses the hon. Gentleman's point.

Bob Neill: I shall finish my point, and then happily give way. The hon. Member for Falmouth and Camborne (Julia Goldsworthy) fails to take on board the point that we are not seeking to compel local authorities to keep council tax down—rather, we want to work with local authorities and give them an incentive to do so by releasing funding identified from central budgets. If they can get to 2.5 per cent. they will get match funding, which will mean that they can reduce their budget and so have a council tax freeze. In the current circumstances, I would have hoped that the Liberal Democrat party welcomes a proposal that reduces costs to householders. We have come up with a specific proposal: it would lead to savings and could be implemented, but it is clear that the Liberal Democrats prefer high levels of taxation.

Julia Goldsworthy: My hon. Friend is absolutely right. The situation is not helped by the fact that council tax funds such a small proportion of local services. Many people still think that business rates fund local services, whereas the council simply collects them on behalf of the Government. Given that councils make payments only twice a month and that much is invested, has the Minister made any assessment of how much of the money caught up in Icelandic banks is earmarked for the Government? It was their income that the councils were investing before they passed it on to the Treasury. I wonder whether the Government have any sense of the extent to which they will be affected?
	I have made it clear that the Government need to review and update their guidance. Treasury strategies need to be updated in the context of vastly changing economic circumstances. It seems ridiculous that, in the light of recent changes and the impact of the crisis, the Government do not believe that they should do the same as councils. I appreciate the Minister saying that the Government have allowed councils to capitalise losses in the past, but I think that a statement saying that councils will be able to do so in future would provide some certainty so that people, councils and council tax payers would know that if, at the end of the day, the councils cannot recover all the money, it will not impact on council tax next year. That sort of backstop should be used only as a last resort, but it should be there.
	Local authorities also need to provide clarity. I hope that all the affected councils will conduct a review into their circumstances. Depending on the timing and the extent of their exposure, it might need to be an independent review, but it could be an internal one. I know that some councils have already initiated such a process. Kent county council, for example, has initiated a review from PricewaterhouseCoopers and I know that North-East Lincolnshire is planning an internal review. I would encourage all other councils to do the same.
	Flagging up some of these structural issues might help, and best practice can be shared. I have spoken to councils that pulled out. The successful ones are not those that simply ratify their Treasury strategy at the time of the full Budget; they may have twice-yearly full council meetings to discuss their strategy; some have member panels to review the position regularly; representatives and third-party advisers may look at what is going to happen in the future. As I say, best practice can be spread and I hope that the LGA will focus on it because it is really important to restoring confidence.
	I shall move on to some broader issues. I know that many Members still wish to speak, so I will not dwell on them too long, as I know that the hon. Member for Bromley and Chislehurst has already touched on them.
	The current problem highlights a much wider lack of transparency and a huge complexity in the workings of local government finance. Councillors have told me, "We assumed that those in the treasurer's department knew what was going on, so why did we need to do anything?" Similarly, the public do not understand how the system works. They ask "How come the council has all this money?"

Julia Goldsworthy: My hon. Friend is right: unfairness is built into the system. It is also very difficult for people to understand what they are getting in return for the money they pay at local level. Council tax finances only a small proportion of local government spending in most authorities, although I know that it is the other way round for my hon. Friend. The rest is determined by a complex funding formula that has floors and ceilings and enables gives councils to claw back money. The system is confusing enough for councillors, let alone the taxpayer.
	Business rates should be raised and spent locally. That would be a very good way of increasing the revenue that councils can raise and spend. Every year people see their council tax rise above the rate of inflation, while also hearing about pressures on their key services. Furthermore, through the complexities involving Iceland people are learning that their council is having to invest money to secure additional revenue. There are so many complexities before we even start thinking about all the other public services that are funded locally with no democratic accountability and with huge sums being spent.
	Handing over many of those resources to local authorities would simplify the process and make it much more transparent for the users of local services. How can we expect people to have confidence in the system if they do not understand how it works? The problem with the financial system at the moment is that it is so complicated that people have no confidence about the future.
	We have seen some action from the Government. The Minister referred to the removal of ring-fencing in some instances, but there is still far too much ring-fencing. Yesterday I attended the launch of the Sustainable Communities Act 2007. The Act has the potential to make a huge difference to the way in which the allocation of resources is decided and to return power to local communities, but real concerns remain about how the Government will deliver that, and in particular about how effective local spending reports will be in casting a spotlight on where public money goes at local level.
	The empowerment White Paper is all motherhood and apple pie—there is very little in it with which to disagree—but unfortunately it does not change the relationship whereby so many resources trickle down from central Government. That fundamental issue must be addressed, along with the need for councils to understand that they are expected to push more resources down to people. It is a two-way process, but the empowerment White Paper is only about what councils should be doing; it does not say what the Government should be doing.
	There has been no action on council tax. As my hon. Friend the Member for Richmond Park (Susan Kramer) said, the present system is fundamentally unfair. Council tax is not a buoyant form of taxation. It does not keep pace with inflation, which is the reason for the above-inflation increases that we have seen. It is also currently based on property valuations that are 20 years out of date. Those who seek to defend council tax as the most appropriate system cannot continue to do so unless they acknowledge that there must be property revaluations at some point. That is the fundamental flaw in the Conservatives' arguments. They will have to say something about revaluation, or their policies will not be credible.
	There are other authorities in which there is no democratic accountability. Police authorities, for instance, are not directly accountable. Why are the Government not doing more to drive the agenda forward so that people can see who is accountable for spending decisions in those authorities? More resources should be transferred to local authorities from quangos such as the regional development agencies. There should be a much more transparent funding formula, there should be a change in the balance between what is raised and what is spent locally, and council tax should be replaced by a fairer system, buoyant and based on ability. The Minister hangs his head. He has heard all the arguments before.
	Council tax is becoming increasingly unacceptable. Thousands of pensioners in my constituency are struggling to pay their council tax. Some of them might even be entitled to council tax benefit but they have not applied for it and do not receive it. Many people are angry because they see no link with the services they get. There needs to be a fundamental review not only of how resources are allocated, but of how funds are raised; simply tinkering around the edges will not solve the fundamental problem.
	Finally, I seek a few thoughts from the Minister. We have been busy dealing with the current crisis, and there has been a huge change in the stability of financial institutions throughout the world. I do not think anybody expected local authorities to be a victim of some of these changes, but I wonder how much time the Department are dedicating to looking ahead to identify other possible impacts. The Minister spoke about fuel costs and a potential increase in borrowing costs. Clearly, housing will be a major issue in future; if the predictions about the numbers of people who are struggling to pay their mortgage or who are likely to be evicted from their property are proved right, there could be huge increases in housing pressures.
	What other areas is the Minister looking at as potentially presenting future problems for local government as a result of the credit crunch? I know that some councils are already reporting concerns about large-scale capital projects, often where they are dependent on the sale of property to part-fund them. They are also concerned about private finance initiative schemes, particularly those under negotiation at present, because increased borrowing costs are suddenly making them a lot more expensive.
	I am also concerned about a lot of the excellent joint working undertaken across local authorities. Local health and education services and local authorities have often worked well together to provide services. My concern is that this is always seen as the added bonus, and that as soon as the funding settlement gets tight such joint working is often the first thing to go—I am seeing that on the ground in my constituency.
	It would be helpful to hear any comments the Minister might have on what is being done to try to pre-empt these potential problems so that we can see them coming down the line rather than having to respond to them after the event, because one thing is certain: while our local communities are very important, we are operating in a changed world now, and we need reassurance that everything is being done to understand what those changes mean to local communities.

Hugo Swire: It is regrettable that this debate is so thinly attended, not only because the problems with the Icelandic banks will have a difficult knock-on effect on our local authorities, but because the general economic situation is creating tremendous uncertainty. It is unfortunate that the Minister has just left the Chamber because I am about to be polite to him: I agree with much of what he said—albeit with some caveats that I shall outline in my speech—not least about the fact that for a lot of people local government is the only kind of government they encounter.
	My hon. Friend the Member for Bromley and Chislehurst (Robert Neill) was candid enough to admit that successive Governments of all political persuasions have tinkered with local government, usually to its cost. However, although sins were committed in the past, that is no excuse to visit the sins of our forefathers on our successors, and that is why I shall devote my comments this evening to why the Government must re-examine their drive towards forcing unitaries on various parts of the country, not least in Devon in my part of the world.
	In Devon, unitary status was originally the idea of Exeter city council, which wished to achieve it based on its existing city boundaries. That proposal was given huge endorsement at the time by the Minister for the South West, who is the Member for Exeter, but he has gone strangely silent now that the proposal is no longer an option. Probably, his thinking was that he could create a citadel city from which to defend himself against the creeping Tory votes that, I suspect, will cause him some trouble at the forthcoming general election.
	The issue of local government reorganisation is the elephant in the room this afternoon. It has been touched on only briefly, perhaps because of the presence of the Minister for Local Government. I wish that he were still in his place, because I think that having been at the Treasury, when he wears his Treasury hat—or hairshirt—he views a move towards unitary status and its implied costs with a wry sense of déjà vu at best. I do not believe that he is a roving ambassador for unitary status, and in that I submit that he is entirely right.
	The situation in which we find ourselves is that the boundary committee will report just after Christmas, I believe, to the Secretary of State and will come up with one of two solutions. The favoured solution is a unitary Devon without Plymouth and Torbay, both of which have already been accorded unitary status. An alternative hybrid scheme, which seemed to me to come out of nowhere and make no sense at all, is a combined Exeter and Exmouth unitary and the rest of Devon in another unitary. I do not know where these people get their ideas from, but certainly not from anyone to whom I have spoken in the county of Devon.
	I believe that the committee can recommend to the Secretary of State that there is no better alternative than the status quo. Everyone's suspicion is that it will not do that, and that it will recommend some kind of unitary status—I suspect for the whole of Devon. At that point, the Secretary of State will be able to listen to those of us who represent that part of the world and make her judgment. I shall explain why, in the changed circumstances in which we find ourselves, she should make the judgment that the status quo should be preserved, with enhanced working of the two-tier system.
	It is worth mentioning briefly the five criteria for a review of local government. The first is that it must attract a broad cross-section of support, which the proposals in my county certainly did not. The original proposal for unitary status came not from a groundswell of opinion and public support but, as I have said, from Exeter city council. The bid was flawed, and its finances were called into question. It was thought that Exeter would not be able to repay the costs of the change within the statutory five years, and we are all having to suffer this period of uncertainty as a direct result. The Minister will know that there have been an enormous number of representations from all kinds of stakeholders— much as I loathe that word, there is perhaps no better word in this context—including district councils and Members of Parliament, who it seems to me are often overlooked in such matters, to say nothing of parish councillors.
	The second criteria for a review of local government is that it should provide for
	"strong, effective and accountable strategic leadership".
	I believe that the current arrangements provide for just those things. I make no partisan point, because Devon county council is temporarily under the stewardship of the Liberal Democrats. It received a three-star rating from the Audit Commission in its 2007 comprehensive performance assessment, and the commission reported that the council was working with partners and improving the economy and the environment. I have my disagreements with Devon county council, as does my district council, but on the whole it is working well. The system whereby some of my district councillors are also county councillors is good, and it encourages co-operation. It is not ideal, but then show me a system that is better and I will support it. Certainly moving towards unitary status is not better.
	In proposing the single Devon unitary option, the boundary committee has flown in the face of submissions from a number of experienced local councils, including my own, which contends that a unitary council would not be as efficient and would be too remote for a dispersed urban and rural community. I cannot conceive of how a unitary would represent my more remote communities, including some of my more remote urban communities, if that makes sense, in the same way as the present council.
	The third criterion for a review is that it must deliver
	"the empowerment of citizens and communities, so that all communities have power and resources to influence the decisions that affect them in their localities."
	A county-wide unitary authority that had a population of approximately 704,000 and covered an area of 1.6 million acres would be one of the largest authorities, geographically, in England, so a council that is both distant and remote from the people whom it is meant to serve would be created. All the proposals that I have examined for Devon, Norfolk and Suffolk are fundamentally flawed; in each case, power is being taken away from local people. The real effect of such vast areas of unitary administration would be to deprive towns of their individual and distinctive voices in representative local government.
	One of the proposals in moving to some form of unitary status is the setting up of community boards, but I simply do not understand what they will do. They will be locally based committees of the unitary council; their meetings would be where local concerns are discussed, community priorities are agreed and decisions are taken about what the unitary council's local budget should be spent on. However, democratically elected parish councils already do an extremely good job locally. In addition, the Devon Association of Parish Councils has regular meetings, hosted, in rotation, by all the towns and parishes in the area. The meetings are attended by: county, district and parish councillors; the police; the fire brigade; health officers; and representatives of the voluntary sector. The meetings achieve nearly all the objectives of the proposed community boards and, thus, another forum is simply unnecessary.
	The fourth criterion is to
	"provide value-for-money services—services should be provided effectively, efficiently and in an integrated and coherent way, ultimately driving up customer satisfaction".
	That seems to be the kernel of the argument. I am not sure whether the affordability and value for money criteria can be met in the current circumstances. Debt has increased, particularly that of the Plymouth, South Hams and Exeter authorities—I believe that Exeter city council has £20 million in icesave alone. Lessons should be learned from the places where these unitary changes have taken place, not least Cornwall and County Durham. Everyone, even the Liberal Democrats, would admit that Cornwall's authority is not working properly, and County Durham's went completely over budget, as we have heard. My hon. Friend the Member for Bromley and Chislehurst, who spoke from the Front Bench, alluded to Professor Chisholm and Professor Leach's book "Botched Business", which articulates in an almost frightening way what has gone on with these changes.
	Another thing that no one has touched on is staff morale. We have paid lip service to staff by saying what a great job they do in local government. I would argue that some of them do a great job in local government. On the whole, people working for local authorities do the job that they are set to do. If they do not do so, they should not be doing the job. There is an enormous degree of uncertainty among employees. I am not talking about the councillors, who will move on to whatever council organisation is in place—if they are lucky enough to get selected. That is part and parcel of being a democratic politician. The existing structures contain people who have devoted their careers to working for the organisations, and feel closely associated with them. Their morale is very low, and they will be delivering their services in a difficult time. So, the sooner the Government can scotch this approach, the better.
	The changes should be affordable. I alluded to why the Exeter city council bid for unitary status was turned down; it was not affordable or workable. I do not believe that any of these changes would be workable. East Devon district council, my local body, is debt free, whereas Devon county council is more than £500 million in debt. Its debt has risen steeply, from £365 million in 2003 to £614 million now. That is an increase of about £250 million in five years. When the Minister talked about the effects of a credit crunch, he was perhaps underestimating the effect that the economic downturn will have on the delivery of local services.
	One needs only to look at the different sections of the front page of  The Times today, which state:
	"Nearly 10,000 jobs are to be lost and up to 100 courts could close as budget cuts hit the public sector."
	Mark Serwotka, the general secretary of the Public and Commercial Services Union, articulated the union's fears when he said:
	"Banking bailouts should not be at the expense of public services."
	The article also states:
	"With most experts forecasting that unemployment will exceed government estimates, the bill for welfare payments is almost certain to rise further... £1 billion of policy initiatives are in jeopardy".
	It also states that cuts in jobs in the prison, probation and court services,
	"along with a freeze on new recruits or the use of agency staff, could lead to the closure of up to 100 courts."
	That is just the beginning. To use an Icelandic analogy, it is the tip of the iceberg. Things will be very serious for local authorities in the months ahead. It is more important than ever that they should deliver first-class services in an affordable and efficient manner while they are under that great strain.
	Others have spoken in far greater detail than I shall about the emergency intervention that the Government will make with the LGA, about the £300 million of English and Welsh councils' assets that it is hoped will be recovered from the two Icelandic banks and about the 116 councils and other organisations that are affected by that problem.
	In this debate, we are talking about what local government is meant to deliver in these difficult times. In my local council area, there are concerns about the move by Government to help first-time home buyers, which will take millions of pounds out of the regional budget for business investment according to the South West of England Regional Development Agency. Ministers have decided that the £300 million HomeBuy Direct scheme to support first-time home buyers should be funded through a partial reallocation of existing RDA budgets. That will mean that £20 million or £30 million will effectively be taken out of the RDAs' budgets for their current projects. That reallocation will largely affect the RDA expenditure in 2010-11 as things stand.
	The leader of my district council, Sara Randall Johnson, has asked the Minister for the South West and the RDA to ensure that that money is spent in the south-west. It is important, if money is to be taken out of the south-west's RDA, to ensure that that money is spent in the south-west region. We have yet to receive an answer, so I would be grateful if the Minister could respond in due course.
	East Devon district council, incidentally, is also asking to use the £5.4 million that it has in housing revenue subsidy, which is paid back to Whitehall, to fund new housing initiatives in east Devon. Other local councils might take note of that. It will be enormously important if the council can get that money back to fund housing because we already have about 4,500 people on the housing waiting list in east Devon. That figure grew during the last financial downturn. Inevitably, people with small businesses borrow against their properties and when the business closes the mortgage becomes unaffordable. That means that they hand their key back and turn up at the housing authority asking to be housed. We will see that happen over the coming months. The Government should consider seriously the bid made by East Devon council, as a locally and democratically accountable organisation, to be given back that £5.4 million to spend on the ground, where the council is best able to identify the need.
	The Secretary of State was asked yesterday, I think, about the accountability of regional Ministers. It seems to me that regional Ministers are phantom Ministers. In my case, the Minister for the South West, the hon. Member for Exeter (Mr. Bradshaw) has a pretty full-time job, I should imagine, at the Department of Health. There is no way in which one can hold a regional Minister to account in his capacity as regional Minister. He is not accountable to Parliament and I do not believe that he has an additional secretariat provided by Parliament to do his job. If he is a spokesman for the south-west, why do we not hear him speaking up for the south-west a little more than he does? I am not singling out the Minister for the South West—I would make the same comment about every regional Minister.
	We know that there is an internal Government wrangle between those who want to set up regional committees to hold the regional Ministers to account and those who resist the idea of such committees. We do not know how much they will cost or how they will be staffed. Would employing professional staff mean that Government would grow even bigger?
	The present situation is hopeless. The Prime Minister is committed to setting up the unelected and unaccountable regional assemblies that are the brainwave—if that is not an oxymoron—of the right hon. Member for Kingston upon Hull, East (Mr. Prescott). We would be glad to see the back of those, but getting rid of then would mean that planning and other powers would be transferred to the RDAs, which are far from satisfactory in other ways.
	We need to look at how local services are delivered. There was an extremely good debate on 7 October in Westminster Hall on regional spatial strategy in the south-west. More than 20 Members of Parliament attended, but none had any clear idea about who would be responsible for the delivery of local housing and budgets after the regional assemblies were abolished. The Minister and the Government need to look urgently at how local democracy is delivered.
	I shall end by saying that this is not the time to look at changing local government in my county of Devon. To paraphrase what the Minister for Local Government said at the start of the debate, local government should do what is written on the tin. In Devon, it is working: it could do better, but the two-tier enhanced system is by the far the best and most affordable. In these times of economic uncertainty, affordability must become the key criterion.

John Mann: There seems to be a consensus that Government at all levels will need to consider some belt tightening, given the rocky state of the world economy, and we could contribute to that by looking at the number of politicians that we have. There are far too many in Britain today: there are not too many in the Chamber at the moment, although the total of 16 who are here is akin to the number who would turn out for a debate in local government in some areas. However, reducing the presently vast numbers of MPs to 400 would be a good first step in cutting our cloth to fit the times, and reducing the membership of the House of Lords from more than 700 to a maximum of 100—I could be persuaded that it should be zero—would be a good second step.
	Local government is the third area where there are too many politicians, and we all know that all political parties in many parts of the country struggle to find sufficient people—not just people of the right calibre, but sufficient people full stop—to stand for local government elections. As well as having too many national politicians, we also have too many local ones, and there may well be a consensus in society that politicians should be seen to cut their cloth appropriately.
	One problem that is exacerbated in local government is that many of the politicians at each level are employed. The fact that increasing numbers of them are paid for the position that they hold is a change of culture, and it is not necessarily a change for the better. One reason why changes have progressed more slowly than they should have in some parts of the country is that the turkeys have not voted for Christmas—that is, the people involved in local government have not opted for irrational amalgamations in size or structure.
	There are two arguments for having unitary authorities in areas such as mine. The first is that neighbouring unitary authorities in south Yorkshire can charge an average of £200 per household more for a band C property, whereas we have to pay for a two-tier structure. Where does the money go? The chaos of the floods showed us that; we saw officers from the district and the county councils meeting to discuss who had the responsibility for sorting out the problems arising from the flooding. It was a classic example of how an irrational local government structure leads to the involvement of too many people, and I hope that the Government will continue to pursue the policy of establishing unitary authorities. The unitary structure is the rational one, and it would be very welcome in areas such as mine. Indeed, I would go further: if councillors are not prepared to move forward on that issue, we should make it much easier for the local electorate to determine whether they wish to have a unitary authority, whether the councillors like it or not. In some parts of the country, that would be welcome.
	The term "democratic deficit" has been mentioned; that is an issue that does not get enough of an airing in the Chamber. There is a democratic deficit, but the problem goes much deeper than whether central Government are taking powers from local government. There is a different level of democratic deficit. Let me illustrate the point with a couple of examples.
	The village of Misson in my constituency has got the country's only mushroom composting operation. That agricultural operation repeatedly creates a rather pungent odour. The legislation to deal with that is national legislation, but the authority that has to police the legislation is a small district council that is loth ever to spend any money on taking anybody to court, be it to impose an antisocial behaviour order or to deal with companies that pollute the air—illegally, in most people's estimation. It is clear that when the parish council and all local people wish action to be taken, they should be able to get national Government to override the powers that they gave to local government and take power at the behest of the parish council, which represents the views of the local community. That would be democracy in practice. For many years, there has been circular argument about how one gets the district council, which has no specialism in the subject—and why should it?—to police and monitor a specific, bespoke operation.
	Let me give a second example: the aggregates levy. In Nottinghamshire, that levy—taken from and paid for, of course, by those quarrying aggregates—goes, via central Government, back to local government and into a central pot. The money is not earmarked for areas affected by aggregate extraction or transportation, but is in a central pot. That is clearly nonsense. Again, the local community and local parish councils in Misson and Scrooby, in transport areas such as Harworth, and in Sturton le Steeple should be able directly to request an element of the aggregates levy, rather than it being circulated back into a central pot for one tier of local government to spend as it wishes.
	I give a third example: neighbourhood renewal money. I represent two neighbourhood renewal areas, Warsop and Manton. The money goes to a neighbourhood renewal team. In one case, there is a parish council, and in the other there is not. The funding is managed by the district council on the basis that the money goes to local people. Perhaps that money ought to go through a parish council. I would be interested to know whether the Conservative party even intends to maintain the neighbourhood renewal money; perhaps the hon. Member for Wycombe (Mr. Goodman) could give us an answer in his wind-up.
	On the local authority business growth initiative, Bassetlaw district council has £1.5 million from the Government for local business growth, but half that money—£800,000—has been earmarked in its budget for job evaluation. The answer that I got to my written question on the subject was, "It's up to local government to decide how the money is spent." Why is money to promote local business growth being spent on job evaluation? Of course job evaluation needs to be paid for, but not from money that is critically needed for business growth. At this of all moments, it is absurd for local councils to make secret decisions to squirrel away business growth money. It is precisely now that we need businesses to grow, so that we can ensure that jobs are available for local people.
	The Travellers policy in my locality is a classic case. All the local authorities in Nottinghamshire came together to decide on their Travellers need assessment. There was to be one assessment and one need determined for all Nottinghamshire. Bassetlaw, in its ultimate wisdom, went it alone, and went first. Surprise, surprise, it suggested that it needed 43 Traveller emplacements. There is currently only one Gypsy living in a caravan in the district, but based on a perceived Gypsy/Traveller requirement, it seems that 43 places are needed. That was put in without any consultation with anybody. I asked the Minister to intervene, because local people were not consulted—the matter did not even go to a meeting of elected councillors; the decision was made arbitrarily by one cabinet member—but central Government have no powers to intervene.
	Who should receive applications, such as the Showman application to build a site three times the size of Oldcotes village, but Oldcotes parish council? Out of the blue, it received that planning application, because Bassetlaw arbitrarily assigned it that way. That is not local democracy at work.
	The ability of local parish councils and communities to approach central Government directly and have their views considered needs to be greatly strengthened. In planning especially, we need proper powers for local parishes, especially when they have gone through the whole rigmarole of determining their own local development plan and having it agreed as part of the local plan. They should have a bigger statutory role in such matters.
	My final, and best, example is the Elkesley bridge. The villagers of Elkesley have needed a bridge over the A1, which has left their village almost inaccessible to the outside world, for 30 years. The decision has to be made by central Government, but the district and county councils do not make that bridge a priority in the regional transport plan. It is left to me and the local parish council to persuade central Government that they should fund that bridge. If we took out those two tiers of local government and allowed the parish council to access central Government directly for a decision, it would enhance local democracy.
	My final point concerns the Icelandic situation. The Fitch report for 22 May, given out to local authorities by Butlers, is straightforward. It unequivocally gives the Icelandic banks a negative rating for the first time. We need a proper investigation—at a later stage, as it is not a priority now—to discover why the handful of councils that took decisions after that date did so. Why did they not read the ratings from Fitch? If they did read them, why did they ignore them? Such speculation with council taxpayers' money is a step too far for any authority.

Michael Penning: It is a convention to be courteous to the previous speaker, but I would be misleading the House if I were to be courteous to the hon. Member for Bassetlaw (John Mann). Many of the issues that he has just waffled on about were debated hours ago. If he had been here for the opening speeches or for any of the debate, he would have heard that and not wasted the House's time.
	I want to talk about an issue that is very important to my constituents—that is why I am so passionate about it—and that is the Buncefield situation. The incident occurred nearly three years ago on 5 December 2005. Dacorum borough council is not the largest—or the smallest—local authority in the country, but it did fantastically well with that incident and subsequent events. However, many of the issues it has to deal with every day are too big and too complicated. Some are also delicate national issues, but that small local authority still has to deal with them every day.
	One issue, which is plain common sense to anyone who understands planning, is that the existing safety planning—the control of major accident hazards regulations—for the depot, which was blown to smithereens by three explosions and the subsequent fire, still exists and can be used by the oil companies, should they wish to rebuild the depot. It is ludicrous in the 21st century that the legal safety regime allows the depot, which was obviously dangerous—the inquiry is still going on three years later—to be rebuilt.
	My local authority, like all local authorities, cares passionately about the safety of its residents. I am sure that all hon. Members care about that as well. It would love to say, "Let's suspend the legal planning regulations for that depot at least until the end of the inquiry." The inquiry is still going on, and many of us would like to see a subsequent public inquiry. However, the local authority is fearful of doing that, because litigation would be brought by the large oil companies almost immediately to attack it in the courts on the basis that it does not have the legal grounds to do so. That is where central Government—I have met the Minister for Local Government, who knows my views, and I am sorry that he is not in his place to hear this again—should come in and help local authorities. I am all for local authorities doing as much as they can and for devolving power to them, but when the issues become too big, too complicated and too dangerous, central Government have to help.
	The regional authority has provided a degree of help. Frankly, I do not want help from the regional authority; I want central Government to say what is right and what is wrong for the safety of my constituents. The Government cannot continue to say that the powers have been devolved and that it is down to the borough council to get legal advice and to challenge three of the biggest oil companies in the world on the future safety of my constituents.
	I am pleased that the Under-Secretary of State for Communities and Local Government, the hon. Member for Tooting (Mr. Khan), who is responsible for housing, is on the Front Bench, and I welcome him to his new role—we have exchanged banter on many subjects over the years. Believe it or not, there is a proposal to build 12,000 houses around the Buncefield site. Everybody knows that the safety zone around the site—it is known as the consultation zone—must be expanded, yet English Partnerships and the Crown Estate, which own the land around the Buncefield site between the M1 and the boundary of Dacorum borough council, propose to build housing on the site.
	As it happens, if there is going to be housing in and around my constituency, I would prefer to protect the green belt, which has been earmarked for development since the new town was built, so I would rather that the housing went on the land around the Buncefield site. In that case, we would need a lot of infrastructure, and there would be a lot of problems because the land crosses borough and district boundaries, but if the Government are going to force 12,000 houses on us, the houses should be put there. However, the housing should not be put there if Buncefield is allowed to be rebuilt.
	The greatest concern for my constituents is that Buncefield will be rebuilt without learning from the mistakes of the past. There are pressures on the Government and the oil companies to rebuild Buncefield, because the aviation fuel is needed for Heathrow. The simple question that my constituents put to me is why is Buncefield needed for Heathrow, when Heathrow has operated successfully for the past three years without Buncefield? Other methods have been used, such as bringing in fuel from other depots.
	Huge pressure is being exerted on a small borough authority that wants to do the best for its community. I am also under pressure, because I have attended meetings with large oil companies at which they said that the Buncefield site was a piece of national infrastructure that they must be allowed to rebuild. When I meet Ministers, speak to Departments and secure Adjournment debates, the responsibility is always pushed down to the local authority, which does not have the expertise, let alone the funding back-up, to take on the oil companies.
	I have discussed Buncefield on many occasions in this House, but I will touch on a related point—only briefly, however, as I want my colleagues to have more time to speak than me. The point is the change in the rules on the business rate for an empty property. The Government have changed the rules so that if a business property is empty, 100 per cent. of the business rate is payable rather than 50 per cent. That may be right or that may be wrong—I do not want to get into the debate about whether that is right nationally—but it cannot be justified in and around the Maylands industrial debate, which is located at the side of Buncefield, where properties were blown to smithereens. Businesses were going to be charged 50 per cent. of the rate, which I still think is an abuse, but they will now be charged 100 per cent. of the business rate, while companies are still trying to decide whether it is safe for their employees to return to those buildings, if they were to decide to rebuild them.
	It is morally wrong to penalise an organisation and for jobs to be lost in a constituency simply because there has been an arbitrary change that does not allow a local authority—which, as everybody knows, has no control over business rates—to say, "Hold on a second. We need to protect jobs."
	I ask the Minister to speak to his colleagues to ascertain whether there is any way for businesses in my constituency which have been devastated by the explosion—through no fault of their own whatever—to go back to at least the 50 per cent. rate while we assess the problems caused by the Buncefield incident.

Brian Binley: Patience has its own reward, and I am delighted to take part in this debate. May I declare an interest? It is well known that I am still a county councillor, having served for almost 12 years. I will cease to be one come May, because my constituency and electoral division are not coterminous, but I shall leave with great regret. I join the many who have said tonight that local government has a massively important role.
	I want to take issue with the White Paper and its broad aims as stated by the Secretary of State for Communities and Local Government in July this year. She said that the broad aims were twofold:
	"to rehabilitate local political activity as a worthwhile activity"
	and to pass more power to the people, so that they feel that if they get involved, it will be worth their time and effort. She said that the key themes were about "power, influence and control" for local authorities and local people. I wish I could accept that with any real fervour, but the truth is that for many in my constituency, the very opposite of those words applies to the Government's actions with regard to local government.
	The poor Government funding formula under which local government in my area—especially my county council—has to labour year after year has massively reduced local power, undermined influence and detracted from good local government. The major reason is plainly because of the Government. The funding formula is a disaster for Northamptonshire. The ad hoc adjustments that the Government have made from time to time have proved a disaster for the county and they have meddled unfairly in the distribution of moneys that rightly should have come to Northamptonshire, but have gone to other areas of the UK, seemingly for political reasons. That makes my constituents angry; it is right that that should be said in this place. The shift of resources away from shire counties to other areas—Labour areas, dare I say—has been nothing short of disgraceful. My constituents are well aware of that, and I shall make sure that they continue to be so until the next election.
	Let me give some facts to support that assertion. In 2006-07, per head of population, taxpayers paid £2,313 for health and social services in Scotland; for the same services in England, the taxpayer paid £1,915. When we take free prescriptions into account, the gap widens. Nobody can tell me that that is fair in any circumstances; my constituents would certainly not believe that it was. Let me proceed: taxpayers spent £2,109 per head on patients in Wales—more than £194 more than the same per capita payment in England. When we add the fact that the divergence within England is sizeable, we recognise that the funding from national Government for local services in my county and constituency is among the poorest across the board. Again, I say that that is unfair.
	In July 2008, when the Institute for Public Policy Research looked into how the Barnett formula was put into effect, it found that Scotland was getting 11 to 18 per cent. too much money for the nation to be treated fairly and that England was getting 1 to 2 per cent. too little—an overall gap of 12 to 20 per cent. Nobody can tell me that that is not partly political. I have heard all the arguments about deprivation. Perhaps this is about the deprivation of future Labour candidates who might not win their seats, for there certainly has to be a better reason than deprivation for that great gap to have occurred.

Sadiq Khan: It is a pleasure for me, Mr. Speaker, to wind up a debate for the first time with you in the Chair, and that its subject should be local government. I was a councillor for 12 years, serving with great pride in the ward of Tooting in the London borough of Wandsworth. The hon. Member for Bromley and Chislehurst (Robert Neill), who opened the debate for the Conservatives, also has considerable experience in that regard.
	When the Minister for Local Government opened the debate, he spent almost an hour talking about local government, and he rightly went into huge detail about the consequences for local authorities of the problems in Icelandic banks. The fact that we have ended our debate with a discussion on the means of preventing extremism demonstrates the depth and breadth of the issues that local government covers, from the free doughnuts proposed by the hon. Member for Bromley and Chislehurst to the pungent smell of mushrooms in the constituency of my hon. Friend the Member for Bassetlaw (John Mann).
	I want to begin by paying tribute to the thousands of local authority employees—who do a tremendous amount of work, and who often dedicate their careers to public service through being council employees—and to the many others associated with local government. I also pay tribute to the thousands of councillors who do such a huge amount of work around the country. Many distinguished Members of Parliament are former councillors; some are about to be former councillors; and some might have become better parliamentarians had they had the experience that some of us have gained in council chambers.
	I have only a few minutes in which to touch on many of the points made in the debate. I enjoyed the passion with which the hon. Member for Bromley and Chislehurst talked about the Icelandic bank crisis. He is a West Ham fan, and one can appreciate why he has been quite troubled over the past few days. We were not sure where his passion came from, but we gave him the benefit of the doubt and decided that it was a passion for local government.
	The hon. Gentleman brought a smile to my face, as someone who served in the London borough of Wandsworth for 12 years. He will remember when, in 1991, the then Prime Minister decided to set a huge dampening grant for certain local authorities. Westminster and Wandsworth were the two beneficiaries that ended up with a zero council tax. When the hon. Gentleman referred in his speech to "screwing the system", I, of course, knew that he had recently re-read the John Major autobiography, so he knew why some local authorities got a huge whopping dampening grant and could set such low council taxes.
	I particularly enjoyed the hon. Gentleman's analysis of local government finance and the robust approach that he took to it, as well as the detail with which he explained the issues. I have to say, however, that although he spent a lot of time—almost 30 minutes—offering a critical analysis, I do not remember any beef in terms of what his party would do if, God forbid, it were to form the next Government. That silence spoke volumes.
	The hon. Gentleman spoke about the bonfire of regional bodies that have huge levers to do a huge amount of good and about the bonfire of the standards regime and accompanying regulations that ensure that councillors maintain minimum standards. He will be aware that, in the current climate, there is a debate to be had about the bonfire of regulations in the mid-80s, which some say led to today's problems. We await with interest the evolution of Conservative policy on local government.
	My hon. Friend the Member for Blyth Valley (Mr. Campbell) spent considerable time talking about his concerns about Northumberland. I know that my hon. Friend the Minister for Local Government has visited Northumberland and that he was making copious notes as my hon. Friend was speaking. I am sure that some of the points raised will be dealt with via correspondence.
	The hon. Member for Falmouth and Camborne (Julia Goldsworthy) spoke about issues ranging from the White Paper and localised business rates to the unfairness of council tax, as she sees it, but the interventions on her demonstrated how unfair we think her proposals are as an alternative. The hon. Lady talked about police authorities and revaluation, but her main concern—and rightly so—was the Icelandic bank crisis and its impact on local authorities. She wanted us to provide more detail about what sort of authorities the 16 affected were—the 13 and the other three that my hon. Friend mentioned. I cannot go into any more detail than did my hon. Friend, except to say two things. First, a joint statement has been published by the Local Government Association and the Government, which the hon. Lady can obtain at the end of the debate. Secondly, the sort of local authorities affected are wide ranging: there is no one type, as they are different councils in different parts of the country and the circumstances are different in each case.
	The hon. Lady also criticised us—unfairly, I thought—for following events rather than acting in advance of them. She will be aware that we set up a rapid response team before we knew about the need to use it for local authorities and she will know that its representatives are now helping local authorities up and down the country. I also have to disagree with her analysis and agree with that of my hon. Friend the Member for Bassetlaw, who said that now is not the time for post-mortems or the blame game. That time will come, but our priority now must be to ensure that investments are safe, that jobs are secured and that local authorities are able to serve our constituents. It is not possible to have it both ways. On the one hand, we are criticised for trying to ensure some minimum standards and for trying to help local authorities through partnerships; on the other hand, we are criticised for not having given more stringent advice to councils on where they should invest their money. As I say, one cannot have it both ways: devolution means just that.
	I thought that the hon. Member for East Devon (Mr. Swire) made an excellent speech, and I say that in a non-patronising way. As a London councillor and London MP, I will not have experienced first hand some of the changes that he articulated. I know that he feels passionately about the subject and he made a clear case. Let me inform the House that the hon. Gentleman was correct that we are still waiting for the boundary committee's final advice to the Secretary of State at the end of 2008. Until we receive that advice, the Government have no role, so I am not going to comment further on the specifics that we heard this afternoon. I assure the House, however, that we will give proper consideration to the boundary committee's advice and that we will take note of all representations received in the allotted time before we take any decision.
	The hon. Gentleman also spoke about the accountability of regional Ministers. He criticised the setting up of regional Select Committees because he saw them as further increasing the size of government, but I am sure he will be aware that Select Committees play a huge role in providing scrutiny of Governments through checks and balances. The hon. Gentleman may not be aware that on 6 November, a debate is scheduled on that very topic and we will see if the recommendations on those Committees are supported.

Sadiq Khan: The shadow Deputy Chief Whip is heckling me from a sedentary position. I ask him to give me time. We shall see what we can do.
	The hon. Member for Northampton, South (Mr. Binley) made an interesting speech. He spoke of the way in which the south is deprived by the rich, the way in which the relative-needs formula is unfair on his constituents, and the way in which his council is poorly funded. Some of us talk of a victim mentality. That applies not just to certain groups or communities, but to certain Members of Parliament and councils who speak of what they consider to be partial funding. But let me add, in fairness to the hon. Gentleman, that at least he was brave enough to come forward with a manifesto on local government for his party. He wants to abolish the national standards regime, to change the funding regime, and to abolish the Barnett formula. We shall see whether his suggestions are taken up by those on his Front Bench.
	The hon. Gentleman's hon. Friend the. Member for Wycombe (Mr. Goodman) spoke, characteristically, in a partial, unbalanced but witty fashion. I enjoyed his contribution, as I always do. I think that he and I agree on the ends—such as community cohesion—and also on some of the challenges that we face, although I suspect that we disagree to an extent on the means. He was wise to point out that issues of terrorism and extremism are not the purview of a single faith, religion or race, and I am pleased that he gave other similar examples. I shall write to him to answer some his questions, but if he considers a meeting with me to be desirable, I shall be happy to meet him—with or without officials—to discuss the issues that he raised. We need national unity during the times of crisis that he described, as well as at times of economic crisis.
	This has been a very important debate, and I congratulate all who were able to take part in it.
	 It being Seven o'clock, the motion lapsed, without Question put .

David Lammy: I was coming to that point. I think my hon. Friend's example showed national excellence and, as a consequence, international excellence. Nissan, of course, is a global company and we are living in a global world. In restating the principle, I simply say that we should fund excellence. Notwithstanding the difficult global financial times that we are entering, as the fifth richest economy in the world we must look to fund world-class excellence. The range of universities receiving funding covers a broad sweep of our university base, and all that money is funding excellent research, wherever it is in the country and whatever diversity is offered by a given university.
	Let me return to the commitment that we made in the science and innovation framework, which was:
	"UK research funding from Research Councils and HE funding bodies will continue to be driven by excellence wherever that may be found."
	That was the stated principle, and I hope it goes to the heart of what my hon. Friend was saying. The Secretary of State has restated our commitment to the very best research and I am happy to restate that position now. Within the framework, Government support has helped the UK research base to sustain an excellent performance against strong global competition.
	The UK is second only to the US in global scientific excellence. With 1 per cent. of the world's population, we carry out 4.5 per cent. of the world's research and claim 8 per cent. of scientific publications. Our science is the most productive and efficient in the G8.
	Research excellence is widely spread. My hon. Friend referred to the 2001 research assessment exercise, in which 75 higher education institutions across England with at least one department rated 5 or 5* took part. Institutions with several excellent departments receive correspondingly greater allocations.
	I am of course aware of the concerns that fundamental or blue-skies research—such as investigating the origins of the universe—is favoured in an unhealthy way over research that is done jointly with business or with a clear application in mind, and the HEFCE and the Department share those concerns. A new research assessment exercise is under way, with the results due in December, and it will form the basis of the allocations for the next academic year. I know that the HEFCE has made a number of changes to improve the exercise and give it the clear goal of properly valuing excellence across a range of research types. That will include applied research and research with business, wherever that is conducted.
	My hon. Friend is rightly proud of the work that his university does with business, and the Government very strongly support collaboration between universities and business. With support from the Government, the higher education community has transformed its relations with business over the past decade. Different businesses want different things from higher education, but some are motivated to access the best research in the world, wherever that may be. The UK has reaped the rewards, through inward research and development investment by international firms.
	My hon. Friend mentioned Microsoft, which has made a major research and development investment. I could also mention Boeing's investment in Sheffield's advanced manufacturing research centre, or Hewlett Packard's research at Bristol. There are many more examples but I recognise, as my hon. Friend emphasised in his contribution, that many firms will want to work with a local partner that can help to solve a local or specific problem that may well be of national interest.
	I know that the university of Hertfordshire has taken an extra step and merged with its local Business Link organisation to support businesses further. One benefit of our higher education system is its diversity, which allows different institutions to play to their strengths. That understanding of diversity and range has really emerged only over the past 10 years.
	Ensuring that we have an excellent research base is the starting point for encouraging work with business, but it is by no means the end of the process. Recently, the HEFCE has started to allocate part of the quality research funding to reward research income from businesses, while the higher education innovation fund invests in knowledge transfer capability between higher education and business. That fund helps institutions to attract further funds from businesses and other users, and it also helps to support collaborative and contract research as well as consultancy and training.
	The innovation fund is deliberately spread more widely than research funding, and it is important to note that Sunderland university will receive more than £4.3 million from it over the three years to financial year 2010. Many of the organisations receiving the maximum allocation under that fund are not among the major research institutions.
	We have also created the new technology strategy board, one of whose key aims is to help businesses to access the best research base. Of course, it is early days, but as a result of setting up the board, we are doubling the number of knowledge transfer partnerships. Those programmes have been running for many years, and they are a highly respected way for universities to work with businesses. Again, many of the institutions that do well in attracting those funds are not the biggest research institutions.
	We are also working with the regional development agencies to introduce innovation vouchers to encourage small and medium-sized businesses to work with a range of universities. All that is bringing great rewards and inward investment. There has been a huge increase in interaction with businesses, public services and others, and the latest higher education business and community interaction survey shows that the income going to universities from users has risen to almost £2.6 billion per annum.
	The importance of universities in the 21st century was further recognised when the Department for Innovation, Universities and Skills was created by the Prime Minister in June 2007 to ensure that the issues that my hon. Friend raised were on the table, and that the dual-purpose nature of our funding base was brought together. The importance of that mission is made greater still by current economic circumstances. Indeed, when he created the National Economic Council earlier this month, the Prime Minister stressed the need to continue to equip the economy with the right investment in skills, in science and technology, and in our infrastructure.
	In partnership with the community, the Government have transformed the research base. In these tougher economic times, I hope to get us to a point at which local innovations for local businesses, and other innovations, are world-class, follow an international template, and provide opportunity for the country. Indeed, Sunderland university is one of the institutions doing all those things. I hope it will continue to provide jobs, opportunities and innovation for local people in future. The new research assessment exercise will runs its course, with the changes that I have outlined, and both the Government and the HEFCE will be aware of the points that my hon. Friend raised.